The idea of the rate hike was to halt a slide in the lira and stem capital outflows after recent emerging-market volatility, in which the Turkish currency dropped to a record low against the dollar. So what went wrong?

“More often than not, raising rates to stem rising outflows and a falling currency is not successful, and only brings temporary relief, because the increase in rates is not sufficient to overcome the loss in confidence that comes from such a move,” said Simon Smith, chief economist at FxPro, in emailed comments.

“Remember, Turkey did not raise rates because the economy is doing well. It did so because the currency is at an all-time low and inflation is high and likely to rise further as a result,” he added.

But even with all this central-bank action, economists are not all that hot on emerging markets at the moment. Those higher interest rates are likely to dent domestic spending, plus a slowdown in China could curb future growth and — to top it all — tapering in the U.S. could create a currency squeeze in those vulnerable economies.

And for Turkey specifically, the rate action alone won’t be enough to turn the lira outlook around, analysts said. Colin McLean, managing director at SVM Asset Management, noted that Turkey has been in denial, in terms of supporting its currency, and that more tightening could be underway.

Abbas Ameli-Renani, emerging-markets strategist at Royal Bank of Scotland, said the market will quickly turn its attention back to the political noise in Turkey. And with local elections coming up in the end of March, coupled with concerns about the country’s financing requirements, more volatility could be on the cards, he pointed out.

“We expect downside pressure on the lira to now return, with the market having already more than rewarded the central bank for the rate hike and its somewhat regained credibility,” Ameli-Renani said.

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